24 July 2005

Peak Oil (2)

[He] shall ravin as a wolf: in the morning he shall devour the prey, and at night he shall divide the spoil...[Genesis 49:27]

I would be remiss if I did not draw the gentle reader's attention to this morning's article at Eurasianet:

Intense competition for unimpeded access to the world’s natural resources is continuing and is likely to increase, according to the April 21 edition of "Jane’s Foreign Report." The current unprecedented surge in fuel prices illustrates the growing need for a greater supply and consequently demonstrates the volatile nature of the energy market. The Caspian Sea could meet some of that demand, because it has sizeable... oil and gas reserves. The littoral states of the Caspian Sea — Russia, Kazakhstan, Turkmenistan, Iran, and Azerbaijan — collectively have an estimated 10 billion-32 billion barrels of proven and another 233 billion barrels of possible oil reserves. In comparison, Saudi Arabia has 261 billion barrels of oil, while the United States, China, and India’s proven oil reserves are respectively 22.677 billion, 18.25 billion, and 5.371 billion barrels.

[links added; several erroneous "trillions" in original corrected—JRM]

The article summarizes the conflicts over pipeline routes as well, but failed to mention a few key issues.

The first of these is that the oil reserves cited by Houchang Hassan-Yarivary dramatically; observe the extreme gap between "proven" and "probable" reserves. For over a decade the region has been alleged to have been virtually another Persian Gulf, home to hundreds of billions of untapped oil reserves. But the '90's were also tough times for oil exploration, as oil prices languished below $20/barrel.

US Dep't of Energy: Growing oil production since independence (an increase of roughly 70% since 1992) has come primarily from the north Caspian states of Kazakhstan and Azerbaijan. Development of the region's oil resources has been led by two major projects: Kazakhstan's Tengiz, and Azerbaijan's Azeri, Chirag, and deepwater Gunashli (ACG) (see Table 1.) Combined, these two projects produced about 410,000 barrels per day in 2002, one-fourth of the regional total, and are expected by the operating companies to produce 1.7 million barrels per day for world oil markets by 2010. Development of these vanguard projects, which are each roughly ten years old, has given rise to the influx of new investment and infrastructure development that constitutes the "second Caspian oil rush," the first having occured in the late 1800s.

Of course, China's daily consumption is 5.5 million barrels a day right now, a doubling since '93; as the nation's fleet of autos explodes in number, it seems reasonable to expect this growth rate to accelerate.

It's long been established that taxes on a good can, in special cases, actually reduce its equilibrium price (Edgeworth, Hotelling). In the case of petroleum, gasoline taxes or BTU taxes can reduce rates of consumption, leading to the development of more efficient devices or, as was the case in countries such as Japan and South Korea, the development of industry and consumption along far less energy-intnesive paths.